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Unease about Federal Reserve Chairman Ben Bernanke's recent suggestion of possibly curtailing the central bank's bond buying in coming months and debate included in the minutes of the latest Fed policy meeting unsettled the markets during the holiday-shortened week. Investors tried to guess when and by how much the Fed might ease up on its easing. U.S. Treasuries posted their biggest losses in more than two years, pushing yields to their highest levels in more than a year. The 30-year mortgage rate rose above 4% and the yield on the 10-year U.S. Treasury broke through 2%, putting the benchmark bond on a par with the dividend yield of the S&P 500 for the first time this year.

When is a Fed tightening not a tightening? When it's a tapering. In other words, the Fed would continue its longstanding program of buying bonds as a way of spurring economic growth, also known as quantitative easing, but at a lesser pace than the current $85 billion a month as long as economic conditions are good enough to warrant a let up.

"You're really talking about how much pressure the Fed is putting on the gas pedal. They are still accelerating and still easing aggressively," says Jason Trennert, chief investment strategist at Strategas Research Partners, a New York City-based institutional-investment research firm.

The Dow Jones Industrial Average fell by 208.96 points, or 1.36%, to 15,115.57 Friday to end the week off 187.53 points, or 1.23%. Still, the blue-chip index ended the month of May up 1.86%, marking the sixth straight month of gains. The Dow has risen in 17 of the past 20 months, the longest such streak since 1951. The Nasdaq Composite was flat for the week at 3455.91. It rose 3.82% for the month of May, the seventh consecutive month of gains.

The S&P 500 fell 18.86 points on the week to close at 1630.74, down 1.14%. It notched its first positive performance for May since 2009 and has been up seven straight months, and 15 of the past 18.

THE WEEK STARTED STRONG as investors enthusiastically responded to news that house prices spiked 10.9% in March from the year-ago period, the biggest appreciation in seven years. The S&P/Case-Shiller index, which measures price changes of existing single-family detached residences, showed all 20 U.S. cities tracked in the index posted gains for the third month in a row. Tempering the exuberance a bit was the disclosure that the gains may have been exaggerated by limited supply.

Still, April housing data released by the U.S. Commerce Department revealed that sales of newly constructed homes were strong, too, coming in higher than expected at a seasonally adjusted annual rate of 454,000, nearly 30% higher than that of a year ago.

No wonder, then, that consumers have 'tude! The Consumer Confidence Index clocked in at its highest level since February 2008, according to the Conference Board, soaring to 72.6 in May from 69 in April. Its Expectations Survey jumped to 82.4 from 74.3 the previous month.

Further good news was delivered by none other than Moody's Investor Services, which lifted its assessment of the U.S. banking system to stable from negative for the first time since the dark days of 2008. Banks rallied.

All of this good news, of course, points to economic strength and provides fodder for the Fed to pull back from the pump. Yet, later in the week, disappointing figures on jobless claims, U.S. economic growth and consumer spending suggested the Fed will continue to prime the pump.

Importantly, Bernanke made clear he is reluctant to taper too soon for fear of jeopardizing the recovery, and without more progress on job creation.

SPEAKING OF TAPIRS…Okay, we're speaking of pigs, really, but we couldn't resist. China's Shuanghui International Holdings agreed to acquire U.S.-based pork processor
Smithfield Foods
(SFD) for $4.7 billion, or $34 a share, and the assumption of debt. The price represents a 30% premium to Smithfield's Tuesday closing price of $26. Should the deal proceed, it will rank as the biggest takeover of a U.S. company by a Chinese firm yet. As the world's largest hog farmer and pork producer, Smithfield provides a valuable commodity to a China interested in securing food supplies for its upwardly mobile population. While there were hints of other competing bids emerging, Smithfield shares ended the week at $32.96, suggesting otherwise.

In another major transaction,
Berkshire Hathaway's
(BRKA) MidAmerican Holdings announced a bid for
NVEnergy
(NVE), a power company serving Nevada, for about $5.6 billion in cash, or $23.75 a share and debt assumption. That's a 23% premium to its May 29 closing price of $19.28. But when you consider that as recently as April 30 NVEnergy traded at $21.63 a share, shareholders perhaps didn't make out as well as MidAmerican. NVEnergy shares have suffered as investors have been rotating out of defensive sectors and into more cyclical areas. MidAmerican seized the opportunity.

Indeed, on an equal-weighted basis cyclical stocks such as industrials, materials, energy, and technology have been outperforming defensive sectors such as health care, consumer staples, utilities, and telecom since late April, an early sign perhaps of stronger economic growth and the start of a new credit cycle, according to Strategas's Trennert. "Most people think that all the stock-market gains are driven by central-bank liquidity. But maybe the stock market is telling us the economy is stronger."

LAST WEEK NOTWITHSTANDING, the stock market's been partying like it's 1995!

The current trajectory of the S&P 500 is nearly a mirror image of 1995, and, as the good folks at Bespoke Investment Group point out, that would be a very good year to emulate. The S&P 500 delivered a 34.1% gain for the year and never dropped more than 2.5% from a prior closing high all year long. The one pullback happened 11 days before the end of the year, a long time to wait before grabbing the bull by the horns. A chart of both years through May 19 shows almost identical patterns as the S&P followed its skyward swing.

A similar pattern emerges in the behaviors of the leaders and laggards in both years. In 1995, the five best-performing sectors as of May 19 were up 13.5% during the remainder of the year while the five worst performing sectors gained 23.9%.

If the 1995 pattern holds true this year, look for the lagging sectors—materials, technology, energy, and utilities—to dominate the second half after underperforming in the first half. In turn, investors would rotate out of the top performing sectors—health care, consumer discretionary, consumer staples, and financials. It's still early but that move appears to be under way.

Echoes of 1995 also show up in the work of the analysts at Ned Davis Research, based in Venice, Fla. They note that through May 29, the S&P 500 closed the day higher than the previous day 61.8% of the time. Only 1971, when that happened 62.5% of the time, and 1995, at 66%, showed more positive closes.

FOR THOSE INTERESTED IN divining the direction of the stock market, it pays to watch what's happening to corporate bond prices.

Tracking the rise and fall of the Dow Jones Equal-Weight U.S.-Issued Corporate Bond Index (Barron'sMarket Lab) and looking at the rate of change in the 26-week moving average of the index has proved a reliable predictor of intermediate-term moves in the stock market for much of the past century.

The 26-week rate of change in the corporate bond index turned negative in April and remains bearish.

In periods when corporate bond prices are rising, the Dow Jones Industrial Average has tended to rise by 11.6% annually, on average. When prices on corporate issues are falling, the DJIA has declined annually by 0.5%, on average. Many other sacred market indicators have broken down in recent times, but the corporate bond index still holds merit.

The indicator has added value in all of the last nine decades with the exception of the 1990s, when it underperformed slightly, according to Doug Ramsay, chief investment officer at the Leuthold Group. The Leuthold Group, founded by the venerable Steve Leuthold, has been cranking out investment research and analysis from the North Country of Minneapolis for three decades.

In the Nineties, the DJIA rose 15.1% a year on average when corporate bond prices rose, but also rose 15.7% when corporate bond prices fell. In the Fifties, the DJIA gained 15% on average when corporate bond prices advanced and only 10.6% when corporate prices dropped. In the turbulent decade from January 2000 to December 2009, the DJIA advanced 5.2% on average on rising corporate bond prices and lost 10.8% when they fell. Leuthold incorporates the corporate bond index information as one of three dozen indicators in the Major Trend Index it uses to track the relationships between stocks and bonds and inflation and interest rates to help determine allocations to stocks and bonds.

IF, INDEED, IT IS CYCLICALS' TIME to shine, then perhaps it is time to take a ride in
General MotorsGM 3.4047226798462384%General Motors Co.U.S.: NYSEUSD37.66
1.243.4047226798462384%
/Date(1481320848793-0600)/
Volume (Delayed 15m)
:
25978657AFTER HOURSUSD37.66
%
Volume (Delayed 15m)
:
455574
P/E Ratio
4.313860252004582Market Cap
55611625570.7648
Dividend Yield
4.03611258629846% Rev. per Employee
753874More quote details and news »GMinYour ValueYour ChangeShort position
(GM) shares. Since coming public 2.5 years ago, after the bankruptcy and government bailout, the giant auto maker's stock has been spinning its wheels, underperforming the S&P 500 by about 42%. Changing hands at a recent $33.89, the stock trades at less than eight times 2014 estimated earnings of $4.38 a share despite expected earnings growth of about 30%. Morgan Stanley is overweight the stock and has a price target of $45 a share, noting that GM is highly leveraged to the fastest-growing markets in the world, has net operating loss credits that will shield it from tax payments until 2018, a strong balance sheet, and, importantly, a popular new truck.